Most insurance policies will provide some level of indemnity if you are financially harmed by something covered by the policy. That's the whole point of having insurance, right?
But financial pain isn't the only kind of damage you may suffer. What about the damage to your reputation if you are the victim of a false claim or frivolous lawsuit? Your insurance company may want to jump at the chance for a favorable settlement out of court. After all, that could limit their losses. But you are still left with potential damage to your personal or professional reputation. Suppose you don't want to settle. You want your day in court, and you believe the evidence will provide vindication.
Is your insurance company obliged to provide a defense? The answer depends on the language in your policy.
For most commercial liability insurance policies in Illinois, the contract with your insurer will state that the insurance company will have "the right and duty" to defend you against any suit seeking damages that would be covered under the insurance policy.
Note the last clause. Since commercial liability is not all encompassing, your Illinois commercial liability insurance policy is not required to defend you against suits seeking compensation for property damage or bodily injury to which the policy does not apply. The claim must bear a direct and plausible relationship to the policy and the policy must at least arguably cover the damages, should they be found to be legitimate.
Conversely, if the facts of the case have nothing to do with the type of coverage in question, and there is no possibility the insurance company will be forced to pay a claim as a result of the litigation, then the insurer would have no obligation to provide a defense. The obligation only arises when the insurance carrier has 'skin in the game,' as it were.
For example: Sam owns a restaurant that sells alcohol. A customer has a few too many, and leaves the bar, and gets in a wreck. The customer then sues Sam and his bar for personal injury because they continued to sell him alcohol knowing he was incapacitated. The Illinois general business liability insurance policy wouldn't cover claims arising from intoxication for a bar engaged in the sale of alcohol. However if the policy had an Illinois liquor liability endorsement, then the policy would respond to the claim. This would include providing defense costs if the Illinois liquor liability endorsement includes the phrase 'duty to defend.'
In sum, if your insurance policy contains the "right and duty to defend" clause, then your commercial liability insurance carrier must provide you with a defense until claims paid out in judgments or settlements reach the limit of insurance coverage.
Generally, the commercial general liability insurance form also states that the insurer will pay all expenses involved in defending, investigating or settling a claim or suit as a supplementary payment. Defense costs shouldn't count against your coverage limit.
Please reach out to me with questions or concerns.
Dan
Email: dan@zeiler.com
Phone: 708.293.5500